The novel coronavirus (COVID-19) pandemic has posed unprecedented health risks and has led to global economic disruptions. The World Economic Forum (WEF), an international organization that fosters public-private cooperation on global, regional and industry agendas, releasedthis month the “Stakeholder Principles in the COVID Era” (Stakeholder Principles) as part of its COVID Action Platform and called businesses to action stating that, during this time of crisis, “[t]he business community’s contribution: [is] to be leaders of responsiveness and stewards of resilience.” In January 2020, the WEF made headlines by issuing its Davos Manifesto 2020, challenging companies to incorporate stakeholders into their corporate purpose, as well as issuing, through its International Business Council (IBC) a draft corporate sustainability disclosure framework, “Towards Common Metrics and Consistent Reporting of Sustainable Value Creation.” Continue Reading

Last week, the European Commission’s Technical Expert Group on Sustainable Finance (TEG) published itsfinal report along with a technical annexsetting forth its recommendations regarding the design and implementation of a unified classification system, known as EU Taxonomy, which will define what economic activities are considered environmentally sustainable under the EU’s sustainable finance regulations. The final report is the result of a nearly two year long process conducted at the direction of the European Commission to assist in the implementation of the Taxonomy regulation. The European Commission will consider the final report as it develops legislation to implement elements of the Taxonomy regulation. Continue Reading

Earlier this week, the Securities and Exchange Commission (SEC) announced that its Investor Advisory Committee (IAC) will be holding a meeting on Thursday, November 7, 2019, at 9:30 a.m. E.T. The agenda includes a morning discussion on whether and how investors use environmental, social and governance (ESG) data in their investment and capital allocation decisions. The agenda and press release provide no further details on the session topic other than the panelist list provided below.

Brief Backdrop

SEC Chairman Clayton has raised a similar question at prior IAC meetings on human capital management (HCM) as the one posed for the November 7, 2019 meeting. Continue Reading

On April 12, 2019, the International Finance Corporation (IFC), a World Bank Group, officially launched their Operating Principles for Impact Management (the Principles). As of the official launch date, 60 global investors have committed to the Principles. The first adopters range from large asset managers, private funds to non-profit investment firms. The focus of the Principles is on impact investing, a term that IFC defines as “investments made into companies or organizations with the intent to contribute to measurable positive social or environmental impact, alongside a financial return.” IFC adapted this definition from GIIN and notes that impact investing focuses on more than just avoiding harm or managing environmental, social and governance (ESG) risks; it aims to utilize investing’s ability to positively impact society by “choosing and managing investments to generate positive impact while also avoiding harm.” Continue Reading

President Trump’s Executive Order yesterday on energy infrastructure and economic growth contained an unexpected Section 5 entitled “Environment, Social and Governance Issues; Proxy Firms and Financing Energy Projects Through the United States Capital Markets.” While the section does not directly address environmental, social and governance (ESG) disclosure, it restates the definition of materiality from the U.S. Supreme Court case, TSC Industries, Inc. v. Northway, Inc., and reiterates a company’s fiduciary duties to its shareholders to strive to maximize shareholder return, consistent with the long-term growth of the company. This order comes on the heels of last week’s U.S. Senate Committee on Banking, Housing, and Urban Affairs hearing on ESG Principles in Investing and the Role of Asset Managers, Proxy Advisors and Other Intermediaries, as well as ongoing activity at the U.S. Continue Reading

IAC Meeting. Last week, the Investor Advisory Committee (IAC or Committee) to the Securities and Exchange Commission (SEC) voted to ask the SEC to further investigate and evaluate whether public companies should be required to disclose information related to human capital management (HCM), in other words, how companies manage workplace relationships including training, talent development and retention.

Over the last few decades, as the US economy has increasingly become based on technology and services, certain investors have expressed more interest in HCM disclosure. Continue Reading

At the 18th Annual Institute on Securities Regulation in Europe last week, SEC Director Bill Hinman spoke about the benefits of the SEC’s current, flexible approach to environmental, social and governance (ESG) disclosure for public companies. He noted that current disclosure requirements are largely principles-based and “apply in areas where the disclosure topics may be complex, associated with uncertain risks and rapidly evolving.” Such an adaptable principles-based disclosure regime, Director Hinman posited, is well suited for addressing often complex, risk-laden and rapidly evolving ESG topics, including how companies consider climate change risks, labor practices or board diversity in their decision-making. Continue Reading

Last week the European Parliament and European Union (EU) member states reached a tentative agreement on proposed legislation that would set standards for low-carbon benchmarks in the EU. In financial markets, a benchmark is essentially an index, or a standard or measure pegged to the value of a “basket” of underlying equities, bonds or other assets or prices, that is used for a variety of investment purposes, such as evaluating the performance of a security, mutual fund, or other investment. Many in the investing community rely on low-carbon benchmarks to create investment products, to measure the performance of investments and for asset allocation strategies. Continue Reading

Last week, the UN Principles for Responsible Investment (PRI), the largest investor network focused on sustainable investing, challenged its over 2,250 signatories to step up their financial reporting when it announced that, beginning in 2020, all signatories will be required to report on climate change risks. PRI requires signatories, which include international asset owners, investment managers, and service providers that collectively manage over $83 trillion in assets, to report various environmental, social, and governance (ESG) metrics on an annual basis. PRI currently requests voluntary reporting on four indicators of climate risks: governance, strategy, risk management, and metrics and targets. Beginning in 2020, as part of their efforts to improve ESG-related disclosure, PRI plans to make risk indicators on both climate-related governance and strategy mandatory to report but voluntary to disclose. Continue Reading

Fitch Ratings announced on Monday that it has launched a new integrated scoring system that shows how environmental, social and governance (ESG) factors, such as climate change, human rights and labor issues, impact individual credit rating decisions.

Its ESG Relevance Scores are sector-based and entity-specific. Fitch has started with over 1,400 non-financial corporate ratings, which it is initially making publicly available at www.fitchratings.com/site/esg. In contrast to other third-party ESG ratings available in the market today, Fitch states that these scores do not reflect judgments as to whether an entity has positive or negative ESG practices, but rather discloses how an environmental, social and/or governance issue specific to the entity influences its current credit rating. Continue Reading

Citing concerns of climate change’s impact on the financial sector, California passed SB 964 last week requiring the country’s two biggest pension funds to publicly disclose and analyze their climate-related investment risks. Under the new law, The California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) must review and report “climate related financial risks” that are “material” to the stability of their public market portfolios. Such “climate-related financial risks” include “intense storms, rising sea levels, higher global temperatures, economic damages from carbon emissions, and other financial and transition risks due to public policies to address climate change, shifting consumer attitudes, changing economics of traditional carbon-intense industries.” Continue Reading

A group of investors representing more than $5 trillion in assets under management petitioned the U.S. Securities and Exchange Commission on October 1, 2018 to develop a comprehensive framework that would require public companies to disclose environmental, social and governance (ESG) aspects relating to their operations. Petitioners include CalPERS, the New York State Comptroller and the U.N. Principles for Responsible Investment. The 19-page petition, available here, cites increasing demands by certain investors for information to better understand the long-term performance and risk management strategies of public companies. The petition notes that the voluntary “sustainability reports” that some companies have produced in response to these demands are insufficient and instead, an SEC-mandated comprehensive framework for clearer, more consistent and more fulsome, reliable and decision-useful ESG disclosure (above and beyond existing SEC disclosure requirements) would meet this demand. Continue Reading

The Task Force on Climate-related Financial Disclosures (“TCFD”), an entity formed by the Financial Sustainability Board (“FSB”) focused on how climate change impacts the finances of global corporations, will publish its latest list of supporters on September 26, 2018. The current list of over 300 supporters, includes major financial institutions, corporations, central banks and national governments, and is available here. Corporations have been cautious in the past to sign on as supporters, but in an August 8, 2018 webinar, the TCFD stated that there is no current monetary or other commitment attendant to becoming a supporter, and no formal timeline to start disclosing against the TCFD’s disclosure principles. Continue Reading

The Financial Stability Board’s Task Force on Climate-Related Financial Disclosure (“TCFD”), an industry-led group formed at the request of the G20, and the Climate Disclosure Standards Board (“CDSB”) announced today at TCFD’s first U.S. Scenario Analysis Conference the launch of the TCFD Knowledge Hub (“Hub”). The Hub is an online platform with peer-to-peer resources to assist organizations in implementing TCFD’s recommendations to public companies on the use of scenario analysis to disclose climate-related risks and opportunities. Our prior posts describing TCFD’s recommendations can be found here and here. The Hub can be accessed at tcfdhub.org. Over 250 organizations have expressed their support for TCFD as of April 2018. Continue Reading

The Sustainability Accounting Standards Board (SASB) released this Monday itsdraft standards for Environmental, Social and Governance (ESG) disclosure, launching a 90-day public comment period which ends on December 31, 2017. These standards set forth ESG topics covering 11 different sectors and 79 industries for public companies to disclose annually.

The draft standards, over four years in the making, were created by SASB working groups open to the public, including registrants, investors and service providers to public companies. The 90-day public comment period provides registrants and other stakeholders another opportunity to shape these disclosure frameworks before they are finalized. This opportunity is important as certain observers expect these standards will have some meaningful uptake. Continue Reading

The Financial Stability Board’s Task Force on Climate-Related Financial Disclosure (“TCFD”), an industry-led group formed at the request of the G20, released yesterday its Final Recommendations Report for “voluntary” climate-related financial disclosure. The TCFD’s mandate is to ensure sufficient climate risk disclosure is available to avoid catastrophic financial market disruption due to climate change impacts.

Why Important? While a variety of climate change disclosure frameworks already exist, such as those of SASB, GRI and CDP, as noted in our previous postsummarizing the TCFD’s December 2016 draft recommendations, these recommendations are particularly relevant because of the FSB’s status as an international body founded by the G7 which coordinates national financial authorities and international standard-setting bodies, including the U.S. Continue Reading

SEC Chair nominee Jay Clayton’s March 23rd hearing before the Senate Banking Committee covered much of the expected ground. In a series of responses designed to avoid controversy, Clayton repeatedly returned to the three core mandates of the SEC – capital formation, investor protection and efficient markets – as touchstones for his future leadership of the Commission, should he be confirmed. Beyond these general areas, Clayton offered few specifics or signals as to how he might steer the Commission during his term as Chair. He did, however, discuss concerns about growing companies finding the U.S. public markets unattractive due to the burdens of being a public company. Continue Reading

In its annual stewardship report covering 2015, State Street Global Advisors (SSGA) indicated that it had voted at 15,471 meetings in 81 countries. The investor voted against management proposals 12% of the time and in favor of shareholder proposals 14% of the time.

In light of the difficulty for passive index managers that are invested in thousands of companies globally to actively oversee their holdings, SSGA develops an annual stewardship program based on its strategic priorities by focusing on specific sectors and environmental, social and governance (ESG) themes. For 2015, SSGA’s sector focus led them to engage with 48 pharmaceuticals and 95 consumer discretionary companies. Continue Reading

Ceres, an environmental nonprofit organization, released this week an SEC Sustainability Disclosure Search Tool. This tool, available here, is the next step in Ceres’s campaign for increased, and more transparent and comparable, climate change and other sustainability disclosure. (See prior blog posts on this topic available here, here, and here.

A global trade association of 64 stock exchanges, the World Federation of Exchanges (WFG), has recommended that its member exchanges voluntarily incorporate a set of 34 ESG factors into listed company disclosure standards.

The WFG, which includes the NYSE and NASDAQ, highlights 34 key performance indicators that the group believes demonstrate the best sustainability practices, such as energy consumption, water management, CEO pay ratio, gender diversity, human rights, child and forced labor, temporary worker rate, corruption and anti-bribery, tax transparency, supplier code of conduct and codes of ethics. The purpose and methodology is explained here and the full list of indicators is set forth here. Continue Reading

In recent years, there has been an increasing amount of attention paid to climate change, both in the media and on the part of “green groups” such as Sierra Club, and regulators in the U.S. and other countries have proposed or finalized rules intended to limit greenhouse gases such as carbon dioxide, methane and ozone-depleting substances. These regulations affect various industries, including coal and oil and gas, as well as industries reliant upon them, such as the power generation and auto industries.

In addition, certain countries, including the U.S., China, India and Brazil, have made public pronouncements of ambitious plans to reduce carbon emissions during the next few decades. Continue Reading

Late last week, BlackRock and Ceres released a detailed investor guide (the “Guide”) outlining various strategies and questions for engaging effectively with companies on environmental, social and governance (“ESG”) risks.

The Guide includes short articles from nearly 30 different institutional investors (including BlackRock, CalPERS, CalSTRS, T. Rowe Price and Breckinridge Capital Advisors) describing their priorities and strategies they use to engage with companies across different asset classes, both internationally and domestically, on ESG matters.

The Guide also includes sector-by-sector questions for investors and Wall Street analysts to ask, including during stock calls, with companies in the following nine industries: (i) Oil, Gas and Mining, (ii) Banking and Finance, (iii) Insurance, (iv) Information Technology, (v) Electric Utilities, (vi) Apparel and Retail, (vii) Transportation, (viii) Food and Beverage and (ix) Healthcare and Pharmaceuticals. Continue Reading

Greenpeace International, WWF International and the Center for International Environmental Law sent letters to executives and directors of 32 major oil, gas and energy companies, warning them that they may ultimately face personal liability related to climate change issues.

According to the NGOs, the targeted companies are “working to defeat action on climate change and clean energy by funding climate denial and disseminating false or misleading information on climate risks.” Beyond this general yet inflammatory allegation, there are no specific examples or references cited other than a list of news stories and other publications about corporate influence and “lobbying” activities. Continue Reading

A group of investors representing over $13 trillion in assets and led by Ceres’s Investor Network on Climate Risk recently submitted recommendations to various global stock exchanges for a uniform mandatory stock exchange standard on corporate environmental, social and governance (ESG) reporting. These recommendations follow Ceres’s April 2013 consultation paper on this topic. The investors recommend exchanges consider adopting, and capturing in a global listing rule, the following three company requirements:

First: Listed companies are to disclose in their annual financial filings a “materiality” assessment where management will discuss its approach to determining what ESG issues are material to their companies.

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